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Challenges in purchasing: How the crisis has changed sourcing

Donauchem
These times are difficult for Buyers. In addition to the daily challenges, they not only have to keep an eye on market developments, but also deal with tense commodity markets, extreme price increases and disrupted supply chains. We talked to the purchasing team at Donauchem about how purchasing has changed since last year and what challenges have to be overcome.
 
Purchasing Manager: Justine Dossal
Purchasing team: Martina Scherhaufer, Bianca Andrea Müllner, Sophia Delian, Moritz Kainhofer
 

Shortage of raw materials and supply chain disruptions non-stop

Many raw materials became scarce overnight last year. The raw material shortage started in spring 2020 with alcohols for hand disinfection. At that time, the purchasing team was under enormous time pressure and had to decide and coordinate very quickly: is there enough packaging available, is there still space in the tank, which customer takes which quantities?
 
"It was like a Tetris game - everything that came in had to go out again immediately to make room for new goods," says purchasing manager Justine Dossal. "Then at the beginning of this year, the situation worsened drastically due to disrupted commodity flows, force majeurs, quarantine measures in the supply chain and other restrictions. Almost all raw materials were in short supply, not just alcohols. Our contracts with suppliers were simply cancelled - now we have spot prices and are relieved to get any goods at all." 
 
In addition to the effects of the Corona crisis, there was also Brexit, which had put additional pressure on supply chains. Martina Scherhaufer was particularly affected by this: "This dragged on for months because the guidelines were not clear. Our goods stood at customs for weeks, but were then sent back to the supplier because too many trucks had already piled up. In the end, it took 8 to 10 weeks until the goods finally arrived." 
 
No sooner had this crisis been mastered than the purchasing team received the news of the Suez Canal blockade at the end of March. All suppliers immediately withdrew their offers, and it was unclear when goods would be available again. "We did our best to cope with this situation, but for a few weeks it was very tense and chaotic," says Ms Dossal.
 
In the meantime, the shortage has reached new dimensions. For example, some products from China are no longer available at all. "Until now, everything was always available, albeit with increased prices. Now the situation has arisen that even products from China are no longer available. This is an absolute novelty, I have never had this situation before," says Ms Scherhaufer.
 

Extremely short time window for placing orders

For a year now, there is sometimes only a time window of a few hours for placing an order. The purchasing team has to constantly monitor the raw material market and obtain updates. "Prices and availability can change within hours," Sophia Delian explains. "You can't miss the tipping point and you always have to be up-to-date."
 
The main challenge at the moment is getting goods at an acceptable price, or at all. "That's where the relationships we've built up over the years with our suppliers help us. We also try to anticipate what might be in short supply soon," says Ms Dossal.
 

Changed flow of goods due to import restrictions

As a result of various import restrictions in the EU, the flow of goods has changed for some products. Whereas goods used to be delivered from the USA to Europe, for example, goods now go from the USA to Asia to avoid customs duties. And the goods that are produced in Asia go to Europe - if they are exported to Europe at all due to the economic situation in Asia. Thus, the flow of goods goes in circles, which is not ideal.
 
The recent imposition of anti-dumping duties on imports of monoethylene glycol (MEG) from the USA and Saudi Arabia had a significant impact. This was initiated in autumn 2020 by the newly founded "Defence Committee of European MEG Producers". The punitive tariffs came into force in June 2021 for an initial period of six months. For imports from the USA, the penalty surcharges range from 8.5 to 52 per cent, depending on the company. Saudi MEG exports were hit with a punitive duty of 11.1 per cent.

"Overnight, MEG was affected by shortage in Europe and buyers had to consider buying in at very high prices, if it was available at all," says Ms Dossal. "Suppliers withdrew their offers, there was a sales stop and ships could not unload because no one knew if the punitive tariffs already applied to these goods. We were still able to stock up in time thanks to our large tank capacities and good supplier relationships, but for a fortnight there was simply no MEG on the market."
 

Huge price increases require more communication with customers

In November 2020, shipping companies also came under heavy pressure. Accordingly, prices rose drastically for imports. The cost of a container in China rose up to ten times. Evasion via India has proved difficult because many shipping companies do not want to dock at Indian ports due to the Corona pandemic prevalent in the country. Chinese port shutdowns are pushing the situation to the extreme.
 
Customers who are close to the market and make regular purchases know the background of the price increases. However, customers who only buy from Donauchem two or three times a year do not see these jumps and cannot comprehend price increases of 20 to 30 percent within a few months. 
 
Although this issue has already determined everyday life at Donauchem's Purchasing department for several months, it is not yet present at all levels of the value chain. "I think this is due to the fact that customers often purchase up to 100 or more raw materials. On this scale, it is simply impossible to always be up to date," says Sophia Delian.
 
 "Our purchasing team is in contact with suppliers every day, we get reports, we get information from the internet and we tap into every source imaginable. It's a full-time job. That's why we try to support our customers as much as possible and provide them with information," explains Justine Dossal.
 

Shortage of tankers and tank wagons  

Since the beginning of the crisis, fewer and fewer ADR drivers are available and prices are rising. "The lack of tankers makes short-term deliveries difficult," says Bianca Müllner. "Loads within a week are hardly feasible at the moment. It was really bad in May with the holidays, where nothing was feasible at all - I had a supplier and a loading window, but it was impossible to find a tanker."
 
Not only there is a tankers shortage, but trucks to transport general cargo are also difficult to find at times. "For a general cargo delivery from Italy, no truck could be found for weeks," says Moritz Kainhofer. "The existing trucks were all out of order and were not accepted. After two weeks it finally worked out - only the supplier had sold some of the goods in the meantime."
 
A similar situation can be observed with tank wagons, where there is also a shortage on the market. The situation was particularly explosive at the beginning of the year with the introduction of the new anti-breaking system in Austria. Tank wagons that did not have this system were stopped at the border. The result was a huge traffic jam that ultimately caused delays of one to two weeks.
 
As a result, lead times have become longer, necessitating a change in planning and the need to plan well in advance. "It just all comes together," says Dossal. "There is no ship, fewer tanker trains, fewer tank wagons." 
 

Maintaining relationships at a distance

With the first lockdown in March 2020, the question arose of how to continue to maintain supplier relationships well without meeting in person. Until then, the topic of video conferencing was almost taboo. Now, inevitably, the switch had to be made quickly, which was definitely challenging for everyone involved.
 
"In the early days, the tension during video conferences was still very noticeable, but today the meetings are much more relaxed," says Martina Scherhaufer. "It also makes a lot of things easier. If there are problems, I quickly organise a video conference with the supplier. That's more personal than talking on the phone, and the exchange often works faster and better than before."
 
In the meantime, online meetings have become a fixed part of everyday life in purchasing. "Of course, an online meeting doesn't come close to a face-to-face meeting, but it comes very close," says Sophia Delian. "Personally, I don't feel the laptop between two people is a big barrier".  
 

Reorganise internal communication  

In addition to the changeover to online meetings, internal cooperation also had to be reorganised. Many threads come together in the purchasing department, and communication with other departments now had to function quickly without face-to-face meetings. The solution was found in daily video conferences with employees from production, planning, logistics, sales and purchasing.
 
"This was extremely helpful, especially during the time when we were buying tens of millions of litres of ethanol for the production of hand disinfectants. The coordination effort was enormous," says Ms Dossal. "From organising the tank wagons to unloading, denaturing and bottling to planning storage capacity, everything had to be perfectly coordinated to handle these volumes."  
 
"Every day, all orders from the purchasing department were coordinated with the sales manager. And that went down to a barrel of 160 kilograms - a tiny amount for a solvent buyer who normally buys in quantities of up to 24 tonnes" says Bianca Müllner. "Over a period of more than four months, we discussed every order and only then released it - so that nothing slips through and we don't promise something we can't deliver."
 
The daily online jour fixes have worked very well and are still in use as soon as it is necessary. Currently, this concerns sulphuric acid, which is subject to severe shortages. "In the meantime, this has worked out well," says Bianca Müllner. "We cooperate very closely with the different departments, coordinate several times a day and everyone knows what's going on."
 

Conclusion: Challenges in Purchasing

For the past year, new challenges have been constantly emerging to which the purchasing team has to respond. Communication, flexibility, sustainable relationships with suppliers and high warehouse capacities are the basis for overcoming these challenges. The team takes it sportingly, because it is precisely in the crisis that purchasing can show its ambition. In the words of Bianca Müllner: "If you can find a product, if you manage to find a new supplier after all - that shows competence is THE experience for a buyer and the confirmation that you are doing your job well.

Donauchem GmbH

www.donauchem.at

Related Links:
Disturbed supply chains can be felt all the way to the furniture store (Der Standard, 20th July 2021)
Donauchem

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